The University of Michigan reported that its mid-February
reading of consumer sentiment fell sharply. The 8.2% month-to-month
decline to a level of 56.2 nearly reversed all of the gains of the
prior two months and returned the index to its lowest level since 1980.
The latest figure was down 21% from last February and the reading fell
short of Consensus expectations for an unchanged level of 61.0.

During the last ten years there has been a 62% correlation
between the level of sentiment and the three-month change in real
personal consumption expenditures.

The expectations component of consumer sentiment led the
decline in the overall February index. The 15.1% month-to-month drop
reversed all of the increases during the prior several months and the
series landed at its lowest level since 1980.

Expectations for business conditions during the next
year plunged 42.6% m/m to a new low for the series which dates back to
1947.
Expectations for conditions during the next five years
also fell. The expected change in personal finances also fell back to
the lowest level since last June with a sharp 9.6% decline.

The current economic conditions index ticked up 0.9% after the
sharp 4.3% January decline. Buying conditions for large household goods
were viewed as having improved very slightly but the index remained
down 17.1% from a year earlier. The view of current personal finances
also added very slightly to the large January gain but the index
remained down by roughly one-quarter from last February.

The opinion of government policy, which apparently influences
economic expectations, improved to the highest level since last April .
Ten percent of respondents thought that a good job was being done by
government while a reduced forty-three percent thought that a poor job
was being done.

Inflation expectations for the the next year fell back to
2.0%. It was as high as 7.0% in May. The range of expectations is from
slight price deflation to a 5.0% increase in prices, though that latter
figure is half the year-ago expectation. The expected inflation rate
during the next five years also fell to 3.0%.

The University of Michigan survey is not seasonally
adjusted.The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.

Stabilizing the Housing Market: Next Steps
is the recent speech by Federal Reserve Board Governor Elizabeth A.
Duke and it can be found
here.

Making Sense of the Subprime Crisis from
the Federal Reserve Bank of Boston is available
here.